North Carolina Foreclosure Laws

Answers

How are mortgage liens treated in North Carolina?

North Carolina is generally known as a title theory state where the property title remains in trust until payment in full occurs for the underlying loan. The document that secures the title is usually called a deed of trust and in North Carolina the mortgage serves the same purpose and generally contains the same terms as a deed of trust and serves the same function in a judicial foreclosure.

How are North Carolina mortgages foreclosed?

The primary method of foreclosure in North Carolina involves what is known as non-judicial foreclosure. This type of foreclosure does not involve court action but requires notice commonly called a sale under the power of sale. When the mortgage is initially signed it will usually contain a provision called a power of sale clause which upon default allows an attorney to foreclose on the property in order to satisfy the underlying defaulted loan which is sometimes referred to as a bond. Because this is a non-judicial remedy there are very stringent notice requirements and the legal documents are required to contain the power of sale language in order to use this type of foreclosure method.

Power of Sale Notice Requirements:

1. Prior to initiating a foreclosure the attorney conducting the foreclosure must notice the borrower on the sale at least twenty (20) days before the sale and publish the notice of foreclosure sale date for once per week for at least two (2) weeks in a newspaper of general circulation in the county in which the property is located. The last publication cannot be less than ten (10) days prior to the sale date. The notice must be posted at the courthouse at least twenty (20) days before the sale.
2. Notice of foreclosure as described above must be served on all occupants/owners of the property being foreclosed upon, and provide a legal description of the property.
3. The trustee or agent will auction the property to the highest bidder including the lender. Sales must occur between 10AM and 4PM on any day other than a Sunday or legal holiday or when the courthouse is closed. The foreclosure sale may be postponed up to ninety (90) days by posting a notice of postponement at the same location the sale was originally going to occur at.

In North Carolina, the lenders can also go to court in what is known as a judicial foreclosure proceeding where the court must issue a final judgment of foreclosure. This process is called foreclosure by action. The property is then sold as part of a publicly noticed sale by the sheriff. A complaint is filed in court along with what is known a lis pendens. A lis pendens is a recorded document that provides public notice that the property is being foreclosed upon.

What are the legal instruments that establish a North Carolina mortgage?

The documents are known as the mortgage or in a commercial transaction, a security agreement. Sometimes the mortgage document is combined with the security agreement.  A mortgage is filed to evidence the underlying debt and terms of repayment, which is set forth in the note.

How long does it take to foreclose a property in North Carolina?

Depending on the timing of the various required notices, it usually takes approximately 90-120 days to effectuate an uncontested non-judicial foreclosure. This process may be delayed if the borrower contests the action in court, seeks delays and adjournments of sales, or files for bankruptcy.

Is there a right of redemption in North Carolina?

Yes. North Carolina has a very short statutory right of redemption, which would allow a party whose property has been foreclosed to reclaim that property by making payment in full of the sum of the unpaid loan plus costs within ten (10) days of the sale through the upset bid process, where any bidder can increase the sale bid by 5% in order to become the winning bidder at the sale.

Are deficiency judgments permitted in North Carolina?

Yes. A deficiency judgment may be obtained when a property in foreclosure is sold at a public sale for less than the loan amount which the underlying mortgage secures.  Deficiency judgments are referenced in North Carolina General Statutes, Chapter 45, Article 2B §45-21.36 and the mortgagor has the right to prove the fair value of the property as a defense to any deficiency based on the sale price.

What statutes govern North Carolina foreclosures?

The laws that govern North Carolina non-judicial foreclosures are found in North Carolina General Statutes, Chapter 45 (Mortgages and Deeds of Trust), Article 2, Article 2A as referenced in §45-4 to §45-21.38